By DAVID CARUSO
Associated Press

NEW YORK - A federal judge has issued a ruling that could doom an Indian reservation's booming business in tax-free cigarettes and spell trouble for other Native American tobacco dealers in the state.

In a decision announced Wednesday, U.S. District Judge Hon. Carol Bagley Amon in Brooklyn barred a group of smoke shops on Long Island's Poospatuck reservation from selling tax-free cigarettes to the general public, saying their location on tribal lands didn't exempt them from state and federal tax law.

Only members of the Unkechaug tribe, which controls the reservation, have a right to buy cigarettes there without paying taxes, she ruled, not the many non-Indian customers who flock to the shops for cheap smokes.

If upheld, the injunction would eliminate much of the business at the stores, which sell millions of cartons of cigarettes a year and are among the biggest suppliers in the state.

The judge stayed the ruling for 30 days to give the shops time to appeal, and Unkechaug Chief Harry Wallace quickly promised that the tribe wouldn't let the decision stand unchallenged.

"It's improper," he said of the ruling.

He accused the judge of ignoring state law and policy regarding taxes and Indian reservations because she dislikes cigarettes.

"She wanted to stop sales at any cost," he said, adding that the ruling would be difficult to comply with, while robbing the stores of their competitive edge. "It would put every Indian store ... out of business."

The ruling is a victory for the city and its mayor, Michael Bloomberg, who sued the stores over their sale of tax-free cigarettes, saying they were illegal.

In its suit, the city claimed that the reservation shops had made a mockery of rules restricting the sale of tax-free cigarettes to members of the tribe.

Each resident of the 55-acre reservation, near the town of Mastic, would need to consume 19,200 cigarettes a day to account for the tons of tobacco sold by the shops, the city said.

City lawyers estimated that smoke shops cost the city and state a combined $840 million in tax revenue, much of it lost to smugglers who travel to the reservation to stock up on cigarettes, then resell them in the city.

"The city will go after every dollar that is owed to city taxpayers," Bloomberg said in a statement announcing the court decision.

Smoke shops located on state-recognized Indian reservations have enjoyed a huge business in cigarettes since the mid-1990s, in part thanks to a string of governors who have refused to enforce state laws that were supposed to set up a system for taxing sales to the general public.

State courts have repeatedly split on whether that policy, known as forbearance, absolves the reservation shops of any responsibility of collecting taxes.

As recently as July, a midlevel state appeals court ruled that smoke shops on land claimed by the Cayuga Indian Nation could not be prosecuted under state law for failing to collect taxes on cigarette sales.

Federal judges, however, have taken a harder line. One Poospatuck smoke-shop owner is awaiting sentencing in a case in which he was convicted of racketeering for selling large quantities of untaxed cigarettes.